Vietnam needs to make it easier for startups to raise funds and allow investors to exit

For a country where private companies account for almost 90 per cent of total businesses, limited fundraising options is a problem.

The newly-formed Vietnam Private Sector Forum (VPSF) is trying to address precisely that, by lobbying the nation’s government into creating investor-friendly policies.

VPSF is a partnership between the Vietnam Young Entrepreneur Association and the Mekong Business Initiative, the cooperative effort of the Asian Development Bank and the government of Australia, to catalyse business growth in the lower Mekong region. Launched in June, VPSF aims to initiate dialogue between the public and private sectors. Over 500 companies attended its launch event.

“Some countries have “think tanks” that provide research and policy input to policymakers. We see the VPSF on similar lines,” said Tu Thu Hien, country manager, Vietnam, for the Mekong Business Initiative.

Companies in Vietnam, including startups, currently have access to three fundraising channels — banks, stock market, and bonds. But banks are by far the primary source of funds — stock listings account for less than 30 per cent — which is an indication that there is significant untapped potential for raising funds through equity or debt through bonds. Without developing these two channels, Vietnam will struggle to build a robust startup ecosystem, which requires easy access to funds and profitable exit routes for investors.

“There has been progress in renewing policies for foreign investments in the country, but the legal framework for diversifying the types of funds remains limited. Asset management firms are raising capital from other institutional investors, while the idle money of the people is abundant,” the VPSF said in a recent report.

The total outstanding loans to the economy stand at $200 billion. Out of that stock market capitalization accounts for $60 billion, and the debt market for just $1.3 billion, according to the VPSF, which has urged the government to set up credit agencies to provide an impetus to growth of the bond market, and put in place more liberal policies to attract foreign investors.

The capital market also needs to be widened by offering financial tools such as derivatives and investment indices. Those options would reduce risks and attract major investors.

“The biggest issue investors face in the Vietnamese capital market is not about risks but in how to assess the risks,” the report said. Vietnam’s top brokerage house Ho Chi Minh City Securities Company, also participated in the group’s study.

This would be the right time to implement reforms as Vietnam, home to 90 million people, draws higher interest from venture capitalists who want to invest in startups, particularly those that have customers in the emerging middle class. Almost half of the country’s population is online, and the country is becoming a source for technology talent. The economy is growing at 6 per cent annually.

VPSF has recommended higher urgency on the part of the government in making laws to govern investments such as angel funding, crowdfunding platforms and venture capital firms. Along with that, VPSF has asked for lowering the costs of starting a new company and making the process less cumbersome. It has also pushed the government to create a more conducive environment for deal and investment activity.

One of the ways the government can do that is to sponsor VC funds, like Israel did for Yozma Group. The 23-year old fund had initially received $100 million of funds from the government. That move, along with tax incentives for foreign investors, helped Israeli entrepreneurs get 326 VC investments last year.

Local entrepreneurs are hoping that the government acts swiftly to create policies and laws that make Vietnam a more attractive destination for venture capital investments. “Innovation and international partnerships need to be oriented towards improving the health of startups and private companies, said Dinh Viet Hung, founder of web template provider Joomlart and angel network VIC Impact. He also heads VPSF’s startup and innovation group.

Vietnam’s tech talent and untapped market is a huge opportunity for the government to reverse decades of low development and make the economy a regional hub for startups. The nation’s entrepreneurs and investors are hoping the government acts quickly to remove roadblocks impeding faster growth of the startup and investment ecosystem.

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